The most significant answer, I’d suggest, is the growing importance of
monopoly rents: profits that ... reflect the value of market dominance. ...

To see what I’m talking about, consider the differences between ... General
Motors in the 1950s and 1960s, and Apple today.

Obviously, G.M. in its heyday had a lot of market power. Nonetheless, the
company’s value came largely from its productive capacity: it owned hundreds
of factories and employed around 1 percent of the total nonfarm work force.

Apple, by contrast, seems barely tethered to the material world..., it
employs less than 0.05 percent of our workers. ... To a large extent, the
price you pay for an iWhatever is disconnected from the cost of producing
the gadget. Apple simply charges what the traffic will bear, and ... the
traffic will bear a lot. ...

I’m not making a moral judgment here. You can argue that Apple earned its
special position — although I’m not sure how many would make a similar claim
for ... the financial industry... But here’s the puzzle: Since profits are
high while borrowing costs are low, why aren’t we seeing a boom in business
investment? ...

Well, there’s no puzzle here if rising profits reflect rents, not returns on
investment. A monopolist can, after all, be highly profitable yet see no
good reason to expand its productive capacity. ...

You might suspect that this can’t be good for the broader economy, and you’d
be right. If household income and hence household spending is held down
because labor gets an ever-smaller share of national income, while
corporations, despite soaring profits, have little incentive to invest, you
have a recipe for persistently depressed demand. I don’t think this is the
only reason our recovery has been so weak — weak recoveries are normal after
financial crises — but it’s probably a contributory factor.

Just to be clear, nothing I’ve said here makes the lessons of history
irrelevant. In particular, the widening disconnect between profits and
production does nothing to weaken the case for expansionary monetary and
fiscal policy as long as the economy stays depressed. But the economy is
changing, and in future columns I’ll try to say something about what that
means for policy.

The most significant answer, I’d suggest, is the growing importance of
monopoly rents: profits that ... reflect the value of market dominance. ...

To see what I’m talking about, consider the differences between ... General
Motors in the 1950s and 1960s, and Apple today.

Obviously, G.M. in its heyday had a lot of market power. Nonetheless, the
company’s value came largely from its productive capacity: it owned hundreds
of factories and employed around 1 percent of the total nonfarm work force.

Apple, by contrast, seems barely tethered to the material world..., it
employs less than 0.05 percent of our workers. ... To a large extent, the
price you pay for an iWhatever is disconnected from the cost of producing
the gadget. Apple simply charges what the traffic will bear, and ... the
traffic will bear a lot. ...

I’m not making a moral judgment here. You can argue that Apple earned its
special position — although I’m not sure how many would make a similar claim
for ... the financial industry... But here’s the puzzle: Since profits are
high while borrowing costs are low, why aren’t we seeing a boom in business
investment? ...

Well, there’s no puzzle here if rising profits reflect rents, not returns on
investment. A monopolist can, after all, be highly profitable yet see no
good reason to expand its productive capacity. ...

You might suspect that this can’t be good for the broader economy, and you’d
be right. If household income and hence household spending is held down
because labor gets an ever-smaller share of national income, while
corporations, despite soaring profits, have little incentive to invest, you
have a recipe for persistently depressed demand. I don’t think this is the
only reason our recovery has been so weak — weak recoveries are normal after
financial crises — but it’s probably a contributory factor.

Just to be clear, nothing I’ve said here makes the lessons of history
irrelevant. In particular, the widening disconnect between profits and
production does nothing to weaken the case for expansionary monetary and
fiscal policy as long as the economy stays depressed. But the economy is
changing, and in future columns I’ll try to say something about what that
means for policy.